Crypto, Regulation and the Stablecoin

STASIS’ founder and CEO, Gregory Klumov, doesn’t need to do what he’s doing. As an early adopter of Bitcoin, he admits he has enough capital to retire. But, rather than spend his days lying on a tropical beach somewhere, he has been working with governments and leading organisations to push for innovation in the crypto space and help streamline regulation.

His company, STASIS, is bringing cryptoeuro to the market by way of a token called EURS. It is the world’s first asset-backed token – a digitalised-asset that is fully collaterised with fiat and traditional assets.

What made you go into the finance industry?

We should start fifteen or twenty years ago, when I was running an internet service provider. I was a student back then and I programmed a billing system for an internet service provider for my neighbourhood. Later I went to study programming and realised I didn’t want to be a programmer, but wanted to work in finance instead, so I went to work for a family office that allocated capital on a global scale. There I learnt how to analyse markets, how to trade in markets, how traditionalists approach markets and the selection process of the particular asset class – how they value it and how they select entry and exit points. I really liked financial markets, so later moved to the asset management industry as an analyst, and then a portfolio manager in a hedge fund. That was the time when I realised the world had issues with traditional money supply.

And what were these issues?

The issue was that governments decided to cure the financial crisis with money printing. At the peak of the crisis, the global central banks printed the equivalent of 200 billion in new money per month, because they had to heal wounded banks and financial institutions from the losses they suffered in the crisis. In 2009 and 2010, the five top central banks – the Bank of Japan, the Bank of England, the Bank of Europe (ECB) and of course the Federal Reserve and the Bank of China, were all printing these crazy amounts of money and I realised there should be some asset class to hide from this excess supply of traditional money, and cryptocurrencies were a natural fit because they are limited in supply by nature. The supply curve of digital assets is very linear, so to say, it is very easy to forecast how many Bitcoins there will be in one year, two years, a hundred years from now. While it’s totally impossible to forecast how many dollars there will be because, if we face another serious macro-economic crisis in the US, the only government response would be more money printing. In fact, the US pension system is having liabilities issues. They have less assets than liabilities going forward, because of the ageing population, which inevitably results in more money printing. That in turn will inevitably result in the rise of the price of assets that are finite, or less supply relative to assets that are increasing in supply, like Bitcoin.

In 2014 I started trading Bitcoin, and started to see the value it had in terms of creating pools of liquidity. That was the time when Exante approached me.

So what are you doing with Exante at the moment?

Exante is our main partner and early investor. They will provide market-making capacity for us. Since Exante has access to almost 80 thousand tradable instruments globally, they have tech-resources and the capacity to make markets in any sort of security. Plus, they have a brokerage licence. For STASIS to succeed, it is crucial for the stablecoin to trade on several exchanges, to be liquid and to not deviate from its Euro-value of €1. Exante is a perfect partner to help us reach this goal, because they will have their trading algorithms balancing the price fluctuations if some investor or trader sells a significant order of STASIS euro-token in the market, for example.

What is the current structure of your company?

We have around twenty people at the moment. Half of them are developers working on smart contracts and their application, as well as integration of exchanges. Five people are from the finance and business development sectors. They compile business models – they talk to the business side of these exchanges and figure out the terms under which we operate. And the rest is just PR and support, which helps us speak at events globally and create some media attention. This team also speaks to the government, because government collaboration was a crucial part of our story.

Are you going to freely trade EURS-token?

Not yet, this is what we are working on right now. This week it will be available on the UK-based DSX-Exchange, by the end of the summer we’ll bring in two more top exchange players, and by the end of the year we’ll have at least five. Since we were very early into this cryptocurrency revolution, so to say, we are minority stake-holders and big clients of several famous exchanges. I cannot mention exact names, but we have soft commitments where, once we reach a certain level of liquidity and threshold, we’ll be listed on the most famous crypto-exchanges.

At what point did you launch your company?

The whole idea was born in 2014. We started reaching out to several governments in 2015 and then the Maltese government approached us.

They approached you?

Yes, well, again, Exante has been present on Malta since and the Bitcoin fund they created has existed since 2012. In fact, it was the first time Bitcoin was ever securitised, globally. It happened even before Pantera Capital in the US created their Bitcoin fund in 2013. We showed the local government, auditor and fund administrator how the whole thing works. And we have continued since 2012 to contribute to their knowledge and to help them climb the learning curve for digital assets. We started working more closely with them, and when the Prime Minister got re-elected and developed a plan for his new term, digital assets became the big subject on his agenda. We advised them on creating this legislative business-friendly environment and legislative framework, and we would really like to coin the term ‘Malta is a cryptoisland’, because we think we were the most influential company in making this territory become a crypto-friendly jurisdiction. But you have to understand the politicians have an asymmetric risk reward when it comes to new technology, especially when it’s something they don’t understand. For entrepreneurs it’s the opposite – you can lose your time, some capital, but, if you win, you capture all the margin, the market share and all the markets right. For politicians, if you win, your salary stays the same, and if you lose you could be jailed or fired. Risk road is asymmetric for politicians versus entrepreneurs, and we understand that very much because we are hedge fund guys ourselves. This is why we understood it would be a long journey, and we would need to educate the government and make sure they were confident with the legislation that we were advising.

Things were looking good in 2017 – in the summer we wanted to launch our stable coin, but then China banned all digital assets, ICOs and the rest, and Malta decided to take a pause with the legislation. We felt the work we’d done for more than a year – contributing knowledge, helping them climb the learning curve and educating them on their asset class and doing all the business development was undone, and so we felt we needed new jurisdiction fast and we went to Kazakhstan, where the Astana financial centre is basically a country within country.

Astana?

Yes, Astana is a free trade-zone, like Hong Kong for China. They have a lot of resources, they brought in UK people like Tony Blair and several UK judges to help them build a fintech and free trade centre. When we started building a framework for Astana, Malta came back and asked us to continue working with them. Competition works, right?

Do you think that cryptocurrency can be an answer for developing economies like Kazakhstan?

The crucial part is access to the financial and banking systems, and a set of rules for the funds, for asset managers and for institutional money managers. While Kazakhstan obviously doesn’t have the latter part, they have access to the global banking system, because they are a trade facilitator between China and Europe. Malta obviously has all the parts, and so had the capacity to move faster. We were very glad when Malta re-started this process, and in January and February we contributed our latest remarks about the upcoming legislation, which went to the voting process and passed. Now it’s an act of legislation.

Are you ready to share your experience with somebody who wants to move to Malta?

Not at this stage, but we are thinking of hosting a global regulatory meet-up later this year here in Malta to share our experience, how we contributed to a number of jurisdictions globally and how it worked out in Malta – by later this year, there’ll be a number of projects with successful track records I could share. Since the regulation of digital assets is one of our areas of expertise, we wanted to host it here on Malta and invite all the regulators we were in talks with, and maybe some new ones, to come and see what a fast and appropriate solution to regulate digital assets could do for an economy and for the local community. For me it’s clear that legislation benefits local governments in terms of intellectual and financial capital that is coming to their country, and also potential future tax revenues. Another thing that is very important is regulatory arbitrage, which is something that one country can exploit in favour of other countries. On a global scale, it will be happening between countries like the UK and Malta, because Malta has a more favourable cryptojurisdiction, or between Japan and Hong Kong, Malaysia and Thailand etc. So there’ll be initial competition for a jurisdiction that is pro-business friendly to digital-assets ecosystems. This is exactly what we are trying to avoid, because regulatory arbitrage is not a good thing for the consumer or for the end-client, it’s good for the short-term speculator, but not for governments. So that’s why we want the global regulators to synchronize their positions on digital assets, to avoid these pockets of regulatory arbitrage.

Why did you start STASIS, and what makes you excited about this company?

I was an entrepreneur, I was doing my internet service provider and then I decided to move into finance. I was lucky to be heard by one of the wealthiest men in Russia, Mr Usmanov, and when he hired me he asked me what I wanted to do and I said I want to do something in IT and finance. At that time, he struggled to offer me a sector where these would intersect indefinitely. With cryptocurrencies, I think I found the perfect balance and, going forward, I plan to capitalise on the experience and knowledge I accumulated in the traditional finance world, plus my thirst for IT and the skills that I gained while working as a programmer with my own business. Also there is an obvious research outcome – if you increase supply of one particular asset in an indefinite time frame, it has to be repriced versus another asset at some point. Of course nobody can forecast or predict the exact tipping point, but it will happen. It happened with Bitcoin last year and there’ll be some corrective period for maybe half a year or a year, but then it will happen again because global economic problems are not going away.

Can you tell us about STASIS’ business plan?

We will manage the reserves. When people send us €1, let’s say, they get one crypto Euro, and we accumulate those reserves into so-called reserve-funds, then manage them as a money-market-fund. The strategy is very conservative – to make 1 percent a year. If you have a billion or two billion in reserves, then one percent from that amount is a significant revenue stream, almost pure profit for the company, because it has very limited costs associated with it.. Once we statistically understand how much redemption we have versus subscriptions, we’ll distribute the reserves into three durations – short-term, medium-term and long-term, and then we’ll allocate them accordingly to fixed-income securities.

And who is going to be in charge of the distribution of the reserves?

Initially our team, but once we reach a certain scale we’ll hire a reputable insurance company, a European one, who will ensure our reserves and manage a part of the assets for us. We’ve already had talks with a very large company, and they expressed an interest in coming onboard.

What’s the big vision? What would make you proud within the next three years?

If this token goes mainstream. If not just crypto, asset-traders, investors and funds specifically tied to this asset-class used it, but the public themselves. So if some businesses globally started sending money, or paying for their goods and services with our token, it would be a tremendous success.

Why would investors buy this token if it’s never going to grow?

Exactly. So for investors we have a separate token, it’s called STASIS Community Token. I cannot give you exact terms on how it will operate yet, because I have legal restrictions on it, but the thing I can tell is we will airdrop a first range of community tokens later this summer to existing EURS token folders. So if you buy on exchange or through our wallet an amount of EURS tokens and hold it, you’ll get community tokens with some coefficient.

It’s a risk-free trade for every market participant, because they can buy or convert money to EURS token and just wait, and they know it will always be backed by Euro. At some point, when the airdrop snapshot is taken, they can convert it back to Bitcoin or Euro itself, and then just receive the airdrop.

Finally, how are you funded at the moment?

We are self-funded. Again, we were very early to this Bitcoin thing and we have enough capital to retire already, but we think we have the capacity and expertise to do something good for this world. A crypto-charity initiative is one of these processes, and stablecoin is also a huge project that could be a backbone of the whole digital assets ecosystem. So for us it’s about building something tangible, something relevant and very helpful to make the world a better place.

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